Problem 13-18A Common-Size Statements and Financial Ratios for a Loan Application [LO13-1, LO13-2, LO13-3, LO13-4]

Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now experiencing a severe cash shortage. For this reason, it is requesting a $540,000 long-term loan from Gulfport State Bank, $120,000 of which will be used to bolster the Cash account and $420,000 of which will be used to modernize equipment. The company’s financial statements for the two most recent years follow:

Sabin Electronics
Comparative Balance Sheet
This Year Last Year
Current assets:
Cash $ 86,000 $ 190,000
Marketable securities 0 22,000
Accounts receivable, net 529,000 340,000
Inventory 960,000 635,000
Prepaid expenses 22,000 26,000
Total current assets 1,597,000 1,213,000
Plant and equipment, net 1,631,600 1,410,000
Total assets $ 3,228,600 $ 2,623,000
Liabilities and Stockholders Equity
Current liabilities $ 820,000 $ 470,000
Bonds payable, 12% 800,000 800,000
Total liabilities 1,620,000 1,270,000
Stockholders' equity:
Common stock, $15 par 810,000 810,000
Retained earnings 798,600 543,000
Total stockholders’ equity 1,608,600 1,353,000
Total liabilities and equity $ 3,228,600 $ 2,623,000
Sabin Electronics
Comparative Income Statement and Reconciliation
This Year Last Year
Sales $ 5,200,000 $ 4,470,000
Cost of goods sold 3,915,000 3,490,000
Gross margin 1,285,000 980,000
Selling and administrative expenses 661,000 556,000
Net operating income 624,000 424,000
Interest expense 96,000 96,000
Net income before taxes 528,000 328,000
Income taxes (30%) 158,400 98,400
Net income 369,600 229,600
Common dividends 114,000 93,000
Net income retained 255,600 136,600
Beginning retained earnings 543,000 406,400
Ending retained earnings $ 798,600 $ 543,000

During the past year, the company introduced several new product lines and raised the selling prices on a number of old product lines in order to improve its profit margin. The company also hired a new sales manager, who has expanded sales into several new territories. Sales terms are 2/10, n/30. All sales are on account.


For both this year and last year:


Present the balance sheet in common-size format. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

Sabin Electronics
Common-Size Balance Sheets
This Year Last Year
Current Assets:
Cash % %
Marketable securities
Account receivable, net
Prepaid expenses
Total current assets
Plant and equipment, net
Total assets % %
Liabilities and Stockholders' Equity
Current Liabilities % %
Bonds payable, 12%
Total Liabilities
Stockholders' equity:
Common stock, $15 par
Retained earnings
Total stockholders' equity
Total liabilities and equity % %


Present the income statement in common-size format down through net income. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

Sabin Electronics
Common-Size Income Statements
This Year Last Year
Sales % %
Cost of goods sold
Gross margin
Selling and administrative expenses
Net operating income
Interest expense
Net income before taxes
Income taxes
Net Income % %

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Jarrod Robel
Jarrod RobelLv2
28 Sep 2019

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